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August 23, 2013

Microsoft Up 6% Today, but as for Tomorrow …

The stock has trailed rivals over the past year or so, but it’s also outperformed many of them, and the Dow, recently

Microsoft (MSFT) said early Friday that CEO Steve Ballmer will retire over the next 12 months.

That seemed to be just the news many investors were looking for, as it shares rose about 6% to trade at about $34.40 at midday on the Nasdaq, which was shut down for several hours Thursday due to technical glitches.

And while some observers were pointing out how “flat” the stock has performed under Ballmer’s leadership, it’s worth noting that – recently, at least – Microsoft has done better than the Dow and market darlings like Google (GOOG).

In the past 30 days, for instance, Microsoft shares have risen 2%, while the Dow has declined 2%. Hewlett-Packard (HPQ), which has seen renewed investor interest since Meg Whitman became CEO in September 2011, dropped 14% in the past month.

Two ETFs that track technology, the iShares Dow Jones U.S. Technology ETF (IYW) and the Vanguard IT ETF (VGT), are up 3% for the 30-day period, while the Tech Select Sector SPDR (XLK) is up about 1.5%.

For the past six months, Microsoft has risen nearly 18% versus roughly 9% for the Dow. Vanguard’s IT ETF has improved 11%, while the other two IT-focused ETFs have failed to keep up with the Dow, moving up about 7.5% on average.

Year to date, HP stormed ahead with a 60% gain, but Microsoft boosted a 22% improvement versus around 17% for the Dow. The three IT-themed ETFs managed to produce returns of roughly 10% to 14%.

One stock facing challenges similar to those of Microsoft — Cisco (CSCO) — is also up 20% year to date. Both, however, are being surpassed by Google, which has ticked up roughly 25%. Oracle (ORCL), however, has traded completely flat for the year so far, and Apple (AAPL) is down about 5%.

On a 12-month basis, Microsoft — up about 7% — is lagging Google (up 30%) and the Dow, which has gained nearly 18%. And when you push the data out five years, of course, Microsoft — though up about 20% — isn’t keeping up with the Dow, which has improved 30%, or Oracle (up 50%) or Apple (up 200%).

Future Shock

The challenge for Ballmer’s replacement is a tough one.

"We have embarked on a new strategy with a new organization,” the departing CEO said in a press release. “My original thoughts on timing would have had my retirement happen in the middle of our company's transformation to a devices and services company. We need a CEO who will be here longer term for this new direction."

Transforming Microsoft into something other than a software company will be incredibly challenging, observers say. And leadership changes, as HP and Apple have learned, are no guarantee of success at slaying such a dragon.

Ballmer, 57, started at the company when he was 24. He became CEO in January 2000, several years before the iPhone, iPad, YouTube, Facebook, Google, cloud computing and other technology came to dominate much of the industry.

"As this work continues, we are focused on selecting a new CEO to work with the company's senior leadership team to chart the company's course and execute on it in a highly competitive industry," said John Thompson, the lead independent director of the software giant’s board.

Investors and others will be sure to watch the selection process closely in the hopes that such leadership can bring Microsoft into the forefront of a rapidly changing but still highly lucrative field.